China will tread carefully in relaxing its birth policies for fear of harming social stability, even as the latest census highlights the urgency to address the country’s declining birth trends and ageing population, policy sources said.
Expectations for birth policy reforms are rising after the 2020 census last week showed China’s population grew at its slowest in the last decade since the 1950s as births declined and ageing accelerated.
A fertility rate of 1.3 children per woman in 2020, on par with ageing societies like Japan and Italy, underscores the risk for China: the world’s second-biggest economy may already be in irreversible population decline without having first accumulated the household wealth of G7 nations.
Top leaders are working out a broader plan to cope with demographic challenges, the sources said, including more effective ways to encourage childbearing by easing financial burdens on couples, rather than simply removing birth curbs.
Raising the retirement age, which Beijing has said will be done gradually, will help slow a decline in the workforce and eventually ease pressures on the under-funded pension system, they said.
China introduced a controversial “one-child policy” in the late 1970s but relaxed restrictions in 2016 to allow all couples to have two children as it tried to rebalance its rapidly-ageing population. The change, however, failed to halt declining births.
The sources said they expect Beijing to encourage more childbearing under the current policy framework, before fully lifting birth restrictions over the next 3-5 years.
Removing birth restrictions could have unintended consequences: a limited impact on city dwellers, who are reluctant to have more children due to high costs, while rural families could expand faster, adding to poverty and employment pressures, the sources said.
“If we free up policy, people in the countryside could be more willing to give birth than those in the cities, and there could be other problems,” said a policy source who declined to be identified due to the sensitivity of the matter.
The sources are involved in policy discussions but not the final decision-making process.
The State Council Information Office did not immediately respond to Reuters’ request for comment.
China aims to create at least 10 million new urban jobs a year, even as the working age population shrinks.
Liu Huan, an adviser to the Chinese cabinet, said China’s main population challenge is not size but ageing, which will put heavy pressure on government finances.
“It’s hard to resolve the birth problem given high housing, medical and education costs,” he told Reuters. “So we should have comprehensive policies.”
CALLS FOR CHANGE
The People’s Bank of China (PBOC) has in recent weeks become more vocal about the sensitive population issue.
In April, the PBOC said in a working paper that China should “fully liberalise and vigorously encourage childbirth” to offset the economic impact, saying China should draw lessons from Japan’s “lost 20 years”.
The demographic shifts could lead to economic stagnation, a falling savings rate and asset price deflation, while the current pension system is ill-prepared for the ageing trajectory, it said.
The proportion of people aged 65 and above hit 13.5% in 2020, up from 8.87% in 2010.
But changes to the present policy will likely be gradual.
“Major policy decisions will come only when the pressure is big enough. Whether we change policy depends on assessments of the impact on social stability,” said a government adviser, who also declined to be named.
TALENT DIVIDEND
Deepening rivalry with the United States has raised the urgency for China to build a more innovation-driven economy. Under President Xi Jinping’s “dual circulation” strategy, China aims to ease dependence on overseas markets and technology.
“We should make a transition from population dividend to talent dividend,” the first policy source said.
The census showed improved education over the last decade. The proportion of people with university education rose to 15.5% from 8.9%, and average years of schooling for people aged 15 or above edged up to 9.9 years from 9.1 years.
Rob Subbaraman, chief economist at Nomura, said “reducing demographic headwinds” will be a rising priority for China as it seeks to avoid the so-called middle income trap.
“The experiences of other Asian countries show that it is challenging to encourage society to increase the fertility rate, but all efforts should be tried to increase the labour force and make it more productive.”
Demands for government intervention in Air Canada labour talks could negatively affect airline competition in Canada, the CEO of travel company Transat AT Inc. said.
“The extension of such an extraordinary intervention to Air Canada would be an undeniable competitive advantage to the detriment of other Canadian airlines,” Annick Guérard told analysts on an earnings conference call on Thursday.
“The time and urgency is now. It is time to restore healthy competition in Canada,” she added.
Air Canada has asked the federal government to be ready to intervene and request arbitration as early as this weekend to avoid disruptions.
Comments on the potential Air Canada pilot strike or lock out came as Transat reported third-quarter financial results.
Guérard recalled Transat’s labour negotiations with its flight attendants earlier this year, which the company said it handled without asking for government intervention.
The airline’s 2,100 flight attendants voted 99 per cent in favour of a strike mandate and twice rejected tentative deals before approving a new collective agreement in late February.
As the collective agreement for Air Transat pilots ends in June next year, Guérard anticipates similar pressure to increase overall wages as seen in Air Canada’s negotiations, but reckons it will come out “as a win, win, win deal.”
“The pilots are preparing on their side, we are preparing on our side and we’re confident that we’re going to come up with a reasonable deal,” she told analysts when asked about the upcoming negotiations.
The parent company of Air Transat reported it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31. The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
It attributed reduced revenues to lower airline unit revenues, competition, industry-wide overcapacity and economic uncertainty.
Air Transat is also among the airlines facing challenges related to the recall of Pratt & Whitney turbofan jet engines for inspection and repair.
The recall has so far grounded six aircraft, Guérard said on the call.
“We have agreed to financial compensation for grounded aircraft during the 2023-2024 period,” she said. “Alongside this financial compensation, Pratt & Whitney will provide us with two additional spare engines, which we intend to monetize through a sell and lease back transaction.”
Looking ahead, the CEO said she expects consumer demand to remain somewhat uncertain amid high interest rates.
“We are currently seeing ongoing pricing pressure extending into the winter season,” she added. Air Transat is not planning on adding additional aircraft next year but anticipates stability.
“(2025) for us will be much more stable than 2024 in terms of fleet movements and operation, and this will definitely have a positive effect on cost and customer satisfaction as well,” the CEO told analysts.
“We are more and more moving away from all the disruption that we had to go through early in 2024,” she added.
This report by The Canadian Press was first published Sept. 12, 2024.
